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Contractionary Effects of Supply Shocks: Evidence and Theoretical Interpretation

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  • Francesco Giuli
  • Massimiliano Tancioni

Abstract

The debate on the response of hours worked after productivity improvements is still an open issue in the theoretical and empirical literature. In this work we show that, once conditional correlations are taken into account, both hours and investment decline temporarily following a positive technology shock. We fiÂ…rst provide evidence about this apparent puzzle employing weakly identiÂ…ed SVECs. We then set-up and estimate a sticky price/wage DSGE model in which the presence of strategic complementarities in pricesetting lowers the slope of the New Keynesian Phillips curve, and show that the posterior impulse responses are consistent with the SVEC-based evidence.

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Bibliographic Info

Paper provided by University of Rome La Sapienza, Department of Public Economics in its series Working Papers with number 131.

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Length: 44
Date of creation: Mar 2010
Date of revision:
Handle: RePEc:sap:wpaper:wp131

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Keywords: technology shocks; investment dynamics; vector error correction model; Bayesian inference.;

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References

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Citations

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Cited by:
  1. Francesco Giuli & Massimiliano Tancioni, 2012. "Prince-setting, monetary policy and the contractionary effects of productivity improvements," Departmental Working Papers of Economics - University 'Roma Tre' 0161, Department of Economics - University Roma Tre.
  2. Laura Bisio & Andrea Faccini, 2010. "Does Cointegration Matter? An Analysis in a RBC Perspective," Working Papers 133, University of Rome La Sapienza, Department of Public Economics.
  3. Giuli, Francesco & Tancioni, Massimiliano, 2012. "Real rigidities, productivity improvements and investment dynamics," Journal of Economic Dynamics and Control, Elsevier, vol. 36(1), pages 100-118.
  4. Francesco Giuli & Massimiliano Tancioni, 2009. "Firm-Specific Capital, Productivity Shocks and Investment Dynamics," Working Papers 120, University of Rome La Sapienza, Department of Public Economics.
  5. Bisio Laura & Faccini Andrea, 2010. "Does cointegration matter? An analysis in a RBC perspective," wp.comunite 0066, Department of Communication, University of Teramo.

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